Biggest UK housing firm to build fewer homes 2 hours ago

Barratt Developments, the UK’s leading housebuilding firm, has announced a significant reduction in its construction plans following a steep decline in profits. For the fiscal year ending in June, the company completed 14,000 homes, a decrease from the 17,000 built during the previous year. Looking ahead, Barratt expects the number of new homes completed in the coming year to be even lower.

The company reported a dramatic 75% drop in pre-tax profits, attributing this decline to high interest rates, which have dampened demand from homebuyers, and rising inflation, which has driven up construction costs. These figures present a challenge for the new Labour government’s commitment to revitalizing the housing market with its “get Britain building” initiative.

Barratt’s Chief Executive, David Thomas, expressed confidence in the company’s ability to meet the existing demand for new homes despite the downturn. He noted that Barratt anticipates completing between 13,000 and 13,500 homes over the next year. This projection is significantly below the levels needed to align with the government’s ambitious housing goals.

The current administration has pledged to increase housing supply by adding 1.5 million homes in England over the next five years. To achieve this, the government plans to reform the planning system, relax regulations on the green belt, and reintroduce mandatory housing targets for local authorities.

Thomas welcomed the proposed changes to the planning system, describing them as crucial for boosting housebuilding, stimulating economic growth, and addressing the chronic shortage of high-quality, sustainable homes. However, Barratt’s recent performance highlights the impact that mortgage rates have on its construction decisions.

Aarin Chiekrie, an equity analyst at Hargreaves Lansdown, characterized Barratt’s results as disappointing for investors, though they were in line with market expectations. He pointed out that reduced home sales and lower prices have constrained cash flow. Chiekrie suggested that while the new government’s reforms may alleviate some challenges for housebuilders, a reduction in mortgage rates is necessary to significantly increase building activity.

In addition to the profit decline, Barratt disclosed an increase in its financial provisions for cladding removal. This adjustment comes as the company continues its investigations into the safety of its buildings in the wake of the Grenfell Tower fire. Having reviewed 53% of its properties, Barratt now estimates that the total cost for cladding remediation will be £628 million, up from last year’s estimate of £536 million.

The company is also in the process of acquiring fellow housebuilder Redrow, although the transaction is still pending approval from the competition regulator. This potential merger could have significant implications for Barratt’s future strategy and its ability to meet the evolving demands of the housing market.

As Barratt navigates these challenges, the broader implications for the UK housing market remain uncertain. The company’s reduced construction targets and financial pressures underscore the complexities of addressing housing shortages amid fluctuating economic conditions and regulatory changes.